Comprehensive Tax Reform Program: What You Need to Know as an Expat
The Philippines Comprehensive Tax Reform Program tagged “The Tax Reform for Acceleration and Inclusion (TRAIN)” is the brainchild of President Duterte’s Administration aimed at creating a tax system that is fair, simple, and efficient for everyone, including expatriates living in the country.
As an expat, you are required to pay taxes if Philippines is the source of your income (s), whether you are a resident or non-resident in the country. If you are currently a non-resident, you can avoid paying double taxation by finding out if your country is one of the 39 countries that has a Tax Treaty Relief Application (TTRA) with the Philippines.
Elements of the Comprehensive Tax Reform Program
Pay attention to the following essential elements of the Philippines Comprehensive Tax Reform Program (TRAIN) as it affects your circumstances in the country. TRAIN is expected to be implemented from January 1st, 2018:
- Personal income tax (PIT): The primary goal of this tax reform is to lower taxes for most of the people working in the country. If you are earning the minimum wage and your annual taxable income is less than P250,000, you are exempted from paying PIT. Most of the taxpayers who are not considered rich will see their tax rates range from 15% to 30% by 2023, far lower than the previous rate of 35%. The taxpayers in this bracket will see their PIT reduced to 25% in 2018 and down to 20% after 5 years. But those with annual taxable income that exceeds P8 million will see their taxes increase from the current 32% to 35%. Husbands and wives that are both working have the benefits of claiming tax exemptions up to P90,000, and the P90,000 from the 13th month’s pay/salary and bonuses will be tax-free. However, Self-employed and Professionals (SEPs) with gross sales under the current VAT threshold will be expected to pay 8% flat tax instead of Income and Percentage Tax. But those with earnings higher than the current VAT threshold will have to comply with PIT.
- Estate and Donor’s Tax: Estate tax is a single rate of 6% estimated according to the estate’s net value, with a standard deduction of P5 million and exemption for the first P10 million for the family home. And yearly donations, gifts, or presents that totaled more than P250,000 attract a flat tax rate of 6% on the net donations, irrespective of the relationships between the donors and the beneficiaries.
- Value-Added Tax (VAT): You need to have an idea about VAT if you are a small business owner in the Philippines. The VAT threshold has been increased from P1.9 million to P3 million, meaning if your earnings fall below P1.9 million, you are not required to pay a VAT. However, the VAT has been divided into 3 different categories: First, Follow PTI scheduled with 40% Optional Standard Deductions or gross sales plus 3% percentage tax; second, PTI schedule with itemized deductions plus 3% percentage tax; or finally, flat 8% tax on gross sales or gross revenues in place of percentage tax and personal income tax.
- Car taxes: If you are going to be using a car in the Philippines, tabulated below are the different car tax rates based on the cost of your car.
|Car price||Tax`||Average effective tax|
|P600,000 and below||4%||3%|
|P600,000 to P1,000,000||10%||8%|
|P1,000,000 to P4,000,000||20%||15%|
|P4,000,000 and above||50%||30%|
- Tax for sugar-sweetened beverages: An excise rate of P3 is imposed on drinks containing caloric or non-caloric sweeteners; P12 tax rate is put on drinks containing high fructose corn syrup.
Late tax payment may result in being slammed with a surcharge, interest, or a compromise has to be reached to settle the backlog of (owned) taxes.
This tax rate is currently put in place by the incumbent Administration of President Duterte, and there may be changes in the future if other person assumes the position of Presidency.